Ch.6 PPE

Question 1

Equipment cost

Answer 1

you would capitalize the purchase price
Included in this would be any costs that are not refundable, such as import duties and sales taxes
Most sales taxes (such as GST and HST) are not included in the cost.
include the cost to bring the asset into use
• delivery of the asset

• installation of the asset
• testing that the asset is operational

Question 2

Componentization

Answer 2

IFRS recommends that parts with similar useful lives be grouped together for purposes of depreciation.

Question 3

Construction of an asset

Answer 3

• construction permits
• site survey costs
• construction costs, including labour, direct management salaries, and materials
• direct borrowing costs incurred to finance the construction until the occupation permit is obtained (note ASPE difference here)
• professional fees

Question 4

Depreciation methods

Answer 4

1. Straight-line method = cost - residual value / useful life
2. Declining balance method
   Y1= Cost of the asset × Depreciation rate
   Y2= (cost -accumulated dep) x depreciation rate , etc
3. Units of production method
   a) cost - residual value/ total units = per-unit depreciation rate
   b) depreciation for the yr= # of units multiplied per-unit depreciation rate

dr deprecation expense
cr accumulated deprecation

Question 5

Revaluation model

Answer 5

Under IFRS
Companies may choose between measuring PP&E using the cost model or the revaluation model
cost= Under the cost model, assets are recorded at historical cost, and depreciation is taken each year
Historical = recorded at fair market value. still depreciated each year.